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Every now and then a general sheds their uniform and makes a good fist of running the state: Augustus and Washington spring to mind; or more recently Olusegun Obasanjo, Nigeria’s one-time military dictator who went on to be a more or less model civilian president. Yet almost always a move from the barracks to the government house ends in tears — and that unhappily seems to be the case in Indonesia.
Two years ago next week, Prabowo Subianto, a former special forces commander, won Indonesia’s presidential election. There were concerns even then that he was ill-suited for the highest office and the task of priming an economy that has forever lagged behind its potential; he is accused of overseeing widespread human rights abuses in the 1980s and 1990s as a general under his father-in-law, the late dictator Suharto.
Prabowo likes to present himself as the essential tough reformer who will open up Indonesia’s notoriously opaque state sector. Last month at Davos, he pledged a crackdown on “greedonomics” and hailed Indonesia as a node of stability in a troubled global economy. A week later investors gave a tarter verdict on his record, with the biggest sell-off of Indonesia’s stock market since the Asian financial crisis of 1998.
The spark was a warning by the index provider MSCI over the “opacity” of shareholding structures, with a threat to downgrade Indonesia to the status of a frontier market. For investors this was a final straw after a year of increasing concerns over the Prabowo government’s fiscal and political record.
Prabowo has seized on an IMF forecast that the economy will expand at 5.1 per cent this year and next, to suggest that under his stewardship it can reach a transformational 8 per cent growth. But to date it is a jobs-free growth stemming from commodities, and his free-spending policies have undermined Indonesia’s record for fiscal prudence carefully built up since the 1998 crisis.
His signature policy has been a populist welfare initiative to fund free school meals and health checks, but it is unclear the government has the funds to pay for it. It has also broadly come at the expense of spending on infrastructure, a focus of his predecessor, Joko Widodo, and something investors badly want to see.
Investors fret increasingly, too, over the autocratic tilt of Prabowo’s presidency. The nomination in late January of his nephew as deputy governor of Indonesia’s central bank underlined concerns about its independence. Prabowo’s allies are talking of scrapping regional elections in what would be a throwback to the Suharto era. Prabowo himself is known to believe that era was the best model for Indonesia.
To its credit, the government moved fast after MSCI’s warning. In a bid to address long-standing concerns over concentrated ownership, especially in those companies run by billionaire tycoons, it has announced plans to double the “free float” minimum to 15 per cent. The heads of the financial regulator and stock exchange have resigned.
Officials like to tout Danantara, Indonesia’s year-old sovereign wealth fund, as the answer to the country’s problems, and to its decades-old dreams of building an economy appropriate in ambition for a state with the world’s fourth-largest population. It was launched to transform the state sector, the backbone of the economy. But, as with so much in Prabowo’s era, there are questions over governance.
The democratic decline began in Widodo’s last year as he sought to build a family dynasty. Now the process is accelerating. Indonesians have shown a fervour for democracy in recent years. But for now, unfortunately, Prabowo looks set to do ever more harm to their hard-won freedoms — and hopes for prosperity.